In July 2022, the Federal Energy Management Program (FEMP) published preliminary direction to help federal agencies plan to meet new performance contracting requirements relating to the Energy Act of 2020, amended 42 U.S.C. § 8253(f)(4).
Key topics include the 50% performance contracting and two-year implementation requirements.
Current Requirements Related to Covered Facility Audits for Project Implementation and Reporting
The Energy Act of 2020, amended 42 U.S.C. § 8253(f)(4) Implementation of Identified Energy and Water Efficiency Measures, reads as follows.
(4) IMPLEMENTATION OF IDENTIFIED ENERGY AND WATER EFFICIENCY MEASURES.
A. IN GENERAL. — Not later than 2 years after the date of completion of each evaluation under paragraph (3), each energy manager shall implement any energy- or water-saving measure that
i. the federal agency identified in the evaluation; and
ii. is life cycle cost-effective, as determined by evaluating an individual measure or a bundle of measures with varying paybacks.
B. PERFORMANCE CONTRACTING. — Each federal agency shall use performance contracting to address at least 50 percent of the measures identified under subparagraph (A)(i).
Agencies are required to complete comprehensive evaluations of each covered facility at least once every four years per 42 U.S.C. § 8253(f)(3). Agencies report the findings of their covered facility evaluations in the web-based Compliance Tracking System (CTS) established by FEMP under authority of 42 U.S.C. § 8253(f)(7)(B). These findings include:
- Total implementation cost of identified potential energy- and water-saving measures
- Estimated anticipated annual energy and water savings (or electricity or thermal energy generated) from the potential energy- and water-saving measures
- A count of potential energy- and water-saving measures by specific technology or technology category
- Evaluation completion date.
Agencies are also required to report the projects that are implemented in their covered facilities, with projects typically consisting of a collection of energy- and water-saving measures. Reported data includes:
- Total implementation cost of initiated projects
- Estimated annual energy and water savings (or electricity or thermal energy generated) from the initiated project
- A count of energy- and water-saving measures implemented by specific technology or technology category
- Type of funding mechanism used (Direct-funded, performance contracts such as energy savings performance contracts and utility energy service contracts, and others)
- Project initiation date (contract award).
Requirements Related to Implementation Deadlines for Projects Identified in the Covered Facility Audits
As amended by the Energy Act of 2020, 42 U.S.C. 8253(f)(4) requires implementation of any life cycle cost-effective energy- or water-saving measure identified in a federal agency's evaluation of a covered facility not later than two years after the completion date of the evaluation. This requirement applies to evaluations completed on or after Dec. 27, 2020. Until further guidance is released, agencies should assume that for each covered facility, they have two years after the evaluation completion date to award a contract for the implementation of any identified energy- or water-saving measures that are determined to be life cycle cost-effective. This is a facility-level compliance metric since it is assigned to each energy manager. Progress will be assessed at the agency level in terms of percentage of covered facilities that have implemented all life cycle cost-effective energy- or water-saving measures identified in an evaluation within two years of evaluation completion. This requirement applies to all life cycle cost-effective energy- or water-saving measures identified in evaluations, whether directly funded or implemented through a performance contract.
Compliance with the energy- or water-saving measure implementation requirement will be assessed by comparing the estimated implementation cost of all energy- or water-saving measures identified in the evaluation with the implementation cost of the energy- or water-saving measures in subsequently awarded project contracts. CTS will generate a report showing potential implementation costs of energy- or water-saving measures identified in the covered facility evaluation with the implementation costs of subsequently awarded projects, along with any remaining potential investment from unimplemented energy- or water-saving measures. CTS reports will also compare a count of energy- or water-saving measures identified in the facility evaluation with a count of the energy- or water-saving measures implemented in the awarded contract(s) for the project(s) as reported in CTS.
The Energy Act of 2020 was signed into law on Dec. 27, 2020. To meet the intent of the law and accurately measure compliance, the evaluation completion date field in covered facility evaluation records in CTS with completion dates on or after Dec. 27, 2020, will be locked for two years from that completion date. However, agencies may still update the findings of existing evaluations to remove energy- or water-saving measures that are not life cycle cost-effective or identify additional energy- or water-saving measures (without changing the locked evaluation completion date). After the two-year evaluation lock period, agencies are free to re-evaluate the covered facility. Under the law, evaluations must be completed at covered facilities at least once every four years. The need to maintain the integrity of compliance tracking of the two-year implementation requirement and associated metrics therefore indirectly limits covered facilities to no more than two evaluations that can be completed every four years.
Statutory Requirements for Project Evaluations Completed Before the Law's Enactment
Energy- or water-saving measure identified in evaluations completed prior to December 27, 2020, are subject to the statutory requirements in place at the time the evaluation was completed and therefore are not required to meet the two-year implementation or the 50% performance contracting requirements of the Energy Act of 2020 amendments. Prior to the Energy Act of 2020, 42 U.S.C. 8253(f)(4)(A) provided:
"Not later than two years after the completion of each evaluation… each energy manager may (A) implement any energy- or water-saving measure that the federal agency identified in the evaluation… that is life cycle cost-effective and (B) bundle individual measures of varying paybacks together into combined projects."
Under the same logic, energy- or water-saving measures identified in evaluations completed prior to December 27, 2020, and subsequently implemented do not count toward the two-year implementation requirement OR the 50% performance contracting requirement. In order for energy- or water-saving measures identified in an evaluation completed prior to December 27, 2020, to count toward the Energy Act of 2020 requirements, the evaluation record in CTS would need to be updated with a new evaluation completion date prior to the award of the contract. (Note: the CTS evaluation records for evaluations completed before December 27, 2020, are not locked and may continue to be updated including the evaluation completion date field.)
For example, a covered facility is planning to award an energy savings performance contract (ESPC) in August 2021 to implement energy- or water-saving measures identified in its evaluation that was completed in November of 2020. The award of the ESPC will not fulfill the new requirements of 42 U.S.C. § 8253(f)(4), as amended, unless the evaluation record in CTS is updated. If the agency wants the ESPC to count toward the new requirements, the evaluation record for that covered facility can be updated with the findings of the ESPC preliminary assessment or investment grade audit with an evaluation completion date on or after December 27, 2020. An ESPC preliminary assessment or investment grade audit contains the necessary information required to update the covered facility evaluation record in CTS.
Clarification on the Requirement That at Least 50% of Covered Facility Projects Be Implemented by Agencies via a Performance Contract
At least 50% of the life cycle cost-effective energy- or water-saving measures identified in evaluations of covered facilities are required to be undertaken through performance contracting (e.g., ESPCs, including ESPC ENABLE, or utility energy service contracts (UESCs)) per 42 U.S.C. § 8253(f)(4)(B). Compliance with this requirement will be assessed at the agency level and can only be assessed within the context of the two-year implementation requirement. Therefore, an agency must be in compliance with the two-year implementation requirement for all of its covered facilities in order to be compliant with the performance contracting requirement. Agency progress (distinct from compliance) will be measured in terms of implementation cost (investment value) of projects awarded by each agency in its covered facilities during the fiscal year, with percentages noted for performance contracting and direct funding.
For purposes of compliance assessment, total implementation cost will be considered "performance contracting" if the contract vehicle is an ESPC or UESC, even if direct funding is used in combination with the performance contracting method (e.g., an ESPC with 10% of implementation cost covered by direct funding will be counted as 100% performance contracting for the purpose of compliance tracking).
Frequently Asked Questions
A full FAQ guide provides clarification and guidance on common questions to assist federal agencies in executing successful energy savings performance contract projects.
DOE will provide final clarification and guidance when it releases the forthcoming Consolidated Guidance for Management of Energy and Water Efficiency in Federal Covered Facilities.